Does an s corporation complicate my accounting or bookkeeping?

Let’s face it. If you're in business, you need to have a decent accounting system. You need an accounting system that calculates the profit or loss you earned or suffered last week, month or year. And you need an accounting system that accurately tells you how much money you have in your bank accounts, what amounts customers owe, and about the value of the other assets you're holding.

In short, you need these sorts of accounting details not for any legal or tax reason so much as just to be a smart manager and entrepreneur.

Given the above reality, the extra accounting required because you operate your business as an S corporation should not be at all significant. Yes, an S corporation will need to be able to produce an annual profit and loss statement and, most of the time, a sturdy balance sheet. But these requirements just mean that you need to use a real accounting system like QuickBooks or, in the simplest cases, a program like Quicken or Microsoft Money.

Let me, however, share a handful of hopefully useful comments about setting up an accounting system for an S corporation...

1. S corporation status will mean that you need to prepare and process employee payroll. You will have employee payroll even if you, the owner, are the only employee working in the business. Be sure to reminder this!

2. If you can, use cash basis accounting for your business. Cash basis accounting makes it much easier for you to keep your books. Yes, accrual basis accounting produces more accurate profit or loss numbers. But accrual basis accounting is more complicated.

3. Okay, here's the truth of the matter: Your tax accountant doesn’t want to help you run QuickBooks, believe me. But he or she knows accounting, and he or she can provide a bit of hands-on coaching or tutoring that will make the work of running your bookkeeping system way, way easier. See if you can buy an hour or two of consulting help.

4. Look seriously at the option of outsourcing your payroll processing once you have multiple employees. Payroll accounting is not hard. But payroll is an area of bookkeeping where you can easily create a lot of work for yourself and screw things up. Paying one of the outside service bureaus $1,000 to $2,000 a year greatly simplifies your bookkeeping.

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